From FCUK to seeing red, French Connection falls to loss

Ten years ago, the infamous FCUK logo helped French Connection to become one
of the most popular fashion brands in the UK. However, the scale of the
challenges now facing the company were highlighted on Wednesday as it slid
into the red.

French Connection posted a £10.5m pre-tax loss for the 12 months to January 31 as sales fell by 8pc.

Shares in French Connection are now worth 27p, valuing the company at just £26m. In 2004, its share price cleared 500p.

Anusha Couttigane at retail consultancy Conlumino said: “Whilst ten years ago the FCUK brand was synonymous with forward-thinking fashion, today French Connection seems to have lost much of its aesthetic definition.

“The lack of distinction has disillusioned consumers who expect to extract more exclusivity in terms of style. Whilst competitors, such as Whistles, have reinvented themselves as a leader in fashion-led retailing, French Connection has become less and less conspicuous on the high street.

“Collections are simply not compelling enough to inspire big spending and this has led to it losing ground in the upper middle market.”

The turning point for French Connection can be traced back to 2004, when the City’s confidence in the business was dented when founder and chairman Stephen Marks sold £40m of shares to help finance his divorce.

Later that year, French Connection issued a profits warning and its shares have never recovered.

However, speaking on Wednesday, Mr Marks said the brand can recover to the heights of ten years ago.

Mr Marks, who is still chairman and chief executive, said that market research by French Connection showed the brand was still “well received.”

“We are doing extremely well in America, we are doing better in America than we did a decade ago, We are one of the few people in America who has been a success,” he said. “The problem is UK retail.”

The company’s accounts show French Connection made an operating profit of £6.2m in North America, but a £16m loss in its UK and European shops on the back of a 7.4pc decline in like-for-like sales.

French Connection has been trying to close 15 loss-making stores in the UK. However, it has only been able to sell or negotiate an exit on two in the last year and the leases on the remaining stores last for up to another 11 years.

Landlords are reluctant to offer the retailer any concessions on rental agreements because, despite French Connection sliding into the red, it still has no debt and a net cash position of £28.5m.

“They [landlords] basically don’t want to talk about us changing anything because they are taking rent,” Mr Marks said.

However, although progress on closing stores has been slow, Mr Marks said that French Connection is seeing “some good progress” from a series of strategic changes introduced last year.

“Nine months ago we instigated massive changes. We are beginning to see the benefits, but it takes a long time in our industry,” he added.

“Although it is very early days in the new year, we have seen a better performance in UK retail, and we expect this to build as the year progresses.”

One of the changes involved delaying the company’s Christmas sale by a week because Mr Marks wants to sell more of French Connection’s products at full price. He said: “We are managing the business tightly in order to increase full-price sales volumes, limit discounting, manage inventory levels, control cash and build confidence with our customers.”

Other changes by Mr Marks include retraining staff, overhauling working hours so more staff are in stores during peak trading hours in the afternoon, cutting stock levels by 30pc and hiring a new design team that has produced clothing which is “better thought and better designed”.

“We have demonstrated our ability to produce fashionable, wearable products over the last 40 years and will continue to do so with a new and talented design team,” Mr Marks added.

“With the help of the broad range of improvements in our business, a strong balance sheet and our global brand strength, we will return the business to profitability.”

Shares in French Connection rose by 2½, or 10pc, to 27p on the back of his comments.